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Nortel Claims Advance, but Cisco Just Shrugs

With its new OPTera Packet Solution, Nortel claims to have leapfrogged its competitors. Cisco isn't worried.



recently fired a shot in a pitched marketing battle to gain ownership of tomorrow's network. But it may take a while to determine whether the shot found its mark.

Nortel, based in Brampton, Ontario, is considered a world leader in so-called optical technology, which is used to carry voice, data and video signals through the glass fiber lines that make up the backbone of the Internet.

Now, it is trying to wrest the initiative from its rivals,






. At times, these two companies appear to have sewn up the Internet infrastructure sector. At issue is winning the race to wire up consumers and companies.

On Tuesday, Nortel unveiled its

OPTera Packet Solution

, designed to weave thick streams of traffic through the Internet and telephone networks by exploiting the high capacity of optical fibers. What does it mean? More ways to get on the Internet. Think of a freeway clogged with cars, says Nortel's executive vice president, Clarence Chandran. It is as though Nortel increased the number of on-ramps at intersections and assigned intelligent traffic cops who can direct


to go faster than

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With OPTera, Nortel claims to have leapfrogged Cisco, which must feel good since Cisco repeatedly refers to networks built by Nortel and Lucent as "old world" systems. A Cisco spokesman, however, says the company has hardly been leapfrogged since Nortel is not yet shipping commercial products. Also, Cisco has focused on lower-capacity network equipment that doesn't compete directly with what Nortel announced today.

Nortel stock yesterday closed up 2 at 50, while Cisco edged 1/4 higher to 68 3/8. Lucent declined 7/16 to 65 7/8.

But Cisco shrugged away the Nortel announcement. "If you are not even in the race with real products, how can a company make their claim about leapfrogging us," a spokesman said.

Although Lucent is developing similar technology, Chandran claims Nortel has a 12-month lead on its rivals -- sort of. (It will not even have some parts available for testing until next summer.)

Nortel is making some pretty far-reaching boasts, according to one money manager who owns Nortel, Lucent and Cisco. "I don't think any of them is going to leapfrog the other meaningfully," he says. He is hanging on to all three stocks.

Still, in today's world, perception is valuable. Carriers young and old are testing new ways of building tomorrow's Internet; once they commit to one supplier's technology for a certain part of the network, it costs a fortune to change. So while data networker Cisco might not compete much with telecom suppliers Nortel and Lucent today, each is struggling mightily to develop loyalty with fast-growing carriers.

Winning such a commitment is not easy.

IXC Communications


, a young phone and data company, has agreed to test Nortel's new systems, but the carrier also relies on Cisco and numerous other vendors. IXC already uses some Nortel equipment but is willing to test alternatives to Nortel's new OPTera offering if they come along, according to Michael Guess, IXC's vice president of engineering.

With its new offerings, Nortel is fully mining the possibilities of

Bay Networks

, the data networker it acquired a year ago. Bay had a tough time competing with Cisco before it was acquired.

Cisco, long a profligate acquirer, recently agreed to spend $7 billion in stock on the optical start-ups




. The two companies "finally round out our portfolio of what you need to build a next-generation network," Kevin DeNuccio, vice president of operations for Cisco's carrier and ISP customers, told investors at the

Banc of America Securities

conference Tuesday.

Still, not all are convinced. "You'll have to see Cisco answer the question that Nortel and Lucent and others have answered," says Craig Johnson, principal with the

Pita Group

consulting firm, which doesn't own shares of Cisco, Nortel or Lucent and hasn't provided consulting services for those companies. One possible solution: Snap up

Sycamore Networks

, a supplier of optical systems based in Chelmsford, Mass., that is set to go public in mid-October. Cisco is known to pounce fast. It bought Cerent just before its initial public offering.